Japan - April 2019S P OT L I G H T
Savills Research

Regional JapaneseOﬃce Markets

Regional Japanese Oﬃce Markets

Regional office performance remains strong
GRAPH 1: High-grade Office Performance, 1H/20192018 Rent

2019 Rent

2018 Vacancy

2019 Vacancy
1.0%

50,000Rent YoY

45,000
5.2%

12.0%

0.9%
8.2%

5.5%

0.8%
0.7%

35,0000.7%

0.7%
30,0000.6%

25,0000.5%

20,000

0.4%

0.4%

0.4%

15,0000.3%

VACANCY

JPY / TSUBO / MONTH

40,000

0.3%

0.2%
0.2%

10,000
0.1%

5,000
0.0%

0
Tokyo

Osaka

0.1%
0.0%

NagoyaFukuoka* Tokyo is represented by Grade A offi ce performance in the C5W.
Source Savills Research & Consultancy

GRAPH 2: All-grade Office Performance, 1H/20192018 Rent

2019 Rent

2018 Vacancy

2019 Vacancy
9.0%

35,000Rent YoY

30,000

8.2%

1.5%

1.9%

8.0%

5.0%

1.1%

3.5%

6.2%

6.0%

20,000

5.0%
4.5%
4.0%

4.0%

15,0003.4%
3.0%
10,0002.7%

VACANCY

JPY / TSUBO / MONTH

7.0%
25,000

3.4%
2.7%
2.4%

2.5%

2.0%

1.9%

1.8%

3.0%

5,000

1.0%

0

0.0%
Tokyo

Osaka

NagoyaFukuoka

Sendai

Sapporo* Market data as of February 2018 and 2019
Source Miki Shoji, Savills Research & Consultancy

HIGH-GRADE OFFICES1
Regional high-grade oﬃce markets continue
to perform well. Strong demand andextremely limited supply have led vacancy
to drop to airtight levels. Average high-grade
rental growth has cooled somewhat overprior periods, though outer submarkets are
picking up strength.
Average high-grade vacancy in the threemajor markets is now below 0.5%. In Nagoya,vacancy has dropped over 0.3 percentage
points (ppts) year-on-year (YoY) and now sitsaround 4 basis points (bps), while Osaka andFukuoka saw drops of 0.5ppts and 0.2ppts,
respectively.
High-grade rental growth among thesemarkets continues to outpace that of Tokyo
Grade A oﬃces (Graph 1). Overall growthappears to be cooling to an extent in Fukuoka
and Nagoya, but accelerating somewhat
in Osaka. Within each of these cities,
YoY growth in multiple outer submarkets
exceeded that of the top submarket.
ALL-GRADE OFFICES2
With strong corporate demand and extremely
limited new supply, the all-grade market has
tightened to levels not seen since the early
1990s. Station-front submarkets still leadoverall performance, though some outersubmarkets are posting stronger rental
growth.
Average vacancy is holding below 3% in all
markets save Sendai, though vacancy there
has now dipped below 5%, the lowest level inover 25 years. With all of Japan’s major oﬃce
markets tightening to record lows, ﬁrms
are ﬁnding it increasingly diﬃcult to secure
space for expansions. These conditions havebeen feeding into strong all-grade rental
growth.
Fukuoka and Sapporo saw the highest YoY
gain in rents, at 5.0% and 3.5%, respectively,
as of February. Growth appears to be slowing
somewhat in the top submarkets of mostregional cities, likely due to limited leasing
activity, while other submarkets are gaining
ground. Notably, Sendai YoY rental growth
exceeded 1% for the ﬁrst time since early
2008.
REGIONAL INVESTMENT
Investor appetite for regional assets
is growing. The October 2018 investor
survey conducted by the Japan Real Estate
Institute (JREI) shows that regional cap
rates continued to compress even as Tokyo
remained ﬂattish in 2018. The largest
1 In each of Osaka, Nagoya, and Fukuoka, Savills monitors
about 50 “high-grade” offi ce buildings typically with a GFA of
15,000+ sq m (4,500 tsubo) and a building age of <25 years.
2 “All-grade” refers to offi ces typically over 1,000 sq m GFA,
depending on the market. Data is sourced from Miki Shoji.

savills.co.jp/research2Regional Japanese Oﬃce Markets

compression was reported for Sapporo andFukuoka, which saw a 40 basis point (bps)compression YoY, while all other regional
markets discussed in our report fell by 20 bps.
According to data from Real Capital
Analytics (RCA), total real estate investment
volumes for 2018 landed at JPY3.9 trillion,a drop of around 18% over the prior year.
A reduction in transaction volumes islargely attributable to limited acquisition
opportunities across all sectors. While
overall domestic investment volumes havedeclined, Sapporo, Sendai, and Fukuoka each
saw volumes increase compared to 2017.
Investment volumes also declined in Osaka,though 2019 has kicked oﬀ with a few major

Regional office markets continue toperform well and are attracting more
attention from investors. As expected,
low tenant turnover has cooled
overall rental growth in some top
submarkets, though other areas are
gaining ground.

GRAPH 3: Investment Volumes By Area For All Asset Types, 2007 to 2018

Tokyo
100%

Yokohama

Osaka

NagoyaFukuoka

SapporoSendaiOther*

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2007

2008 2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

* “Other” represents portfolio transaction values that have not yet been allocated to speciﬁc assets.
Source RCA, Savills Research & Consultancy

GRAPH 4: Chika Koji Commercial Land Prices, 2013 to 2019

Miyagi (Sendai)

Hokkaido (Sapporo)

Fukuoka

Tokyo

Osaka

Aichi (Nagoya)

8.0%

YOY CHANGE

6.0%

4.0%

2.0%

0.0%

-2.0%

-4.0%
2013

2014

2015

2016

2017

2018

2019

Source MLIT, Savills Research & Consultancy

3oﬃce transactions in the market.
In January, it was announced that
GreenOak Real Estate would purchasea 21-property portfolio from Takeda
Pharmaceutical at a price rumoured to exceed
JPY50 billion. The portfolio spans most of
the major regional markets surveyed in thisreport. The largest of the assets was Takeda’s
headquarters, the Takeda Midosuji Building
located in Osaka, which has a GFA of 32,000
sq m. In the same month, Activia REIT
acquired Edge Shinsaibashi, a mixed-use
oﬃce and retail building near Shinsaibashi
Station in Osaka, for JPY19.8 billion. The
REIT’s sponsor, Tokyu Land, had reportedly
purchased the property from Angelo Gordon
in July 2018. Limited opportunities and sharp
cap rates in Tokyo appear to be incentivising
investment in regional markets.
REGIONAL LAND PRICES RISING
The diﬀ usion of investment and development
activity outside of Tokyo is supporting
growth in land prices across the country.
According to the most recent national land
value survey (Chika Koji), overall commercial
land prices outside of the top three metro
areas continued to rise after their growth
rates turned positive last year, while
residential land prices posted positive YoY
growth for the ﬁrst time in 27 years (Graph 4).
At the prefectural level, Tokyo is still
posting the strongest land-price growth;
however, land prices at top locations inregional cities now appear to be growing
faster. The Ministry of Land, Infrastructure,
Transport and Tourism’s (MLIT) latest
quarterly Land Price Look Report, which
tracks the value of 100 “high-use” sites
throughout the country, revealed that 97
target sites showed land price increases in
Q4/2018. According to the report, land prices
at surveyed sites in major regional cities grewat a faster rate than surveyed areas in Tokyo(Graph 5).
Increases in commercial land prices inregional markets continue to be driven
mainly by demand for hotels and retailfacilities that can capitalise on rising inboundRegional Japanese Oﬃce Markets

tourism. This has led to polarisation withinregional markets, as key tourist destinations
and urban centres are seeing much morerobust growth, bolstered by strong demand
fundamentals. That said, these growthcentres appear to be having a ripple eﬀect onother sectors and areas, as revealed by the
positive turn in overall regional residential
land prices.

GRAPH 5: Land Price Look Report, Q4/2018
Flat

0-3% Growth

3-6% Growth

100%
90%

% OF SURVEYED AREAS

80%
70%
60%
50%
40%
30%
20%
10%
0%
Greater Tokyo

Greater Osaka

Greater Nagoya

Other Regional

Source MLIT, Savills Research & Consultancy

GRAPH 6: Regional GDP Growth, FY2007 to FY2015
Tokyo

Osaka

Aichi

FukuokaMiyagi

Hokkaido

10%
8%

GDP GROWTH YOY

6%
4%
2%
0%
-2%
-4%

REGIONAL MACRO
Regional economies are expanding steadily.
The consumption tax hike slated for
October warrants some caution for macro
conditions; however, the government intends
to implement various stimulus measures
to reduce the eﬀect on consumption.
Interestingly, all regional markets fared
better than Tokyo in terms of GDP growth
in FY2014, a year which began with theimplementation of the previous tax hike
(Graph 6).
The Bank of Japan (BOJ) conﬁrmed in its
January Regional Economic Assessment that
all regional economies continue to either
expand or recover (Table 1). Encouragingly,
Hokkaido (Sapporo) is recovering from theSeptember 2018 earthquake.
Population declines remain the top
concern for the long-term viability of regional
economies. However, the cities surveyed inthis report serve as the primary economic
hubs of their respective regions and havebeen seeing positive net migration. Sapporo
and Fukuoka in particular have been
attracting a large number of residents relative
to their total populations (Graph 7).

-6%
-8%
-10%
2007

2008

2009

2010

2011

2012

2013

2014

2015

Source Prefectural governments, Savills Research & Consultancy

EMPLOYMENT AND DEMAND
After rising slightly, the national
unemployment rate fell back to 2.3% in
February. The rate has held within a rangeof 2.3% to 2.5% since the beginning of 2018,

TABLE 1: BOJ Regional Economic Assessment, January 2019REGION

TREND

Hokkaido (Sapporo)“Recovering moderately, earthquake induced
downward pressure has continued to ease”

Tohoku (Sendai)“Has continued to recover moderately”

Kanto (Tokyo)“Expanding moderately”

Tokai (Nagoya)“Expanding”

Kinki (Osaka)“Has continued to expand moderately”

Kyushu (Fukuoka)“Expanding moderately, with growth gaining
more solid footing”

CHANGE VS OCTOBER

Source Bank of Japan, Savills Research & Consultancy

savills.co.jp/research4Regional Japanese Oﬃce Markets

GRAPH 7: Net Migration To Major Regional Cities, 2015 to 2018

Net Migration, 2015 - 2018 (LHS)% of Population as of 1/1/2019 (RHS)
2.5%

40,00035,0002.0%
30,00025,0001.5%

20,0001.0%

15,00010,000

0.5%
5,000
0

0.0%
SapporoSendai

NagoyaOsaka

Fukuoka

Source Ministry of Internal Aff airs and Communications, Municipal Government Websites,
Savills Research & Consultancy

GRAPH 8: Job-to-application Ratios, Selected Prefectures,2000 to February 2019
Tokyo

Osaka

Aichi (Nagoya)FukuokaMiyagi (Sendai)

Hokkaido (Sapporo)

2.5x

2.0x

1.5x

1.0x

0.5x

0.0x

Source Ministry of Health, Labour, and Welfare, Savills Research & Consultancy

while the national job-to-application ratio
has maintained a level at or above 1.6x since
May 2018. Indeed, Japan is experiencing
an exceptionally tight labour market andcompetition for talent is ﬁerce.
Corporations continue to show stronglabour demand and are aiming to expandoﬃces in regional markets. However,even companies that can secure adequate
workforce in this highly-competitive market
are having diﬃculty ﬁnding the oﬃce spacenecessary to carry out expansions.
CONVERTING TO CAPITALISE
Regional economies are performing welland companies are looking to strengthen

their presence; however, new oﬃce supplyis essentially limited to the central Tokyo
market. As a result, regional oﬃce markets
are reaching an unprecedented level oftightness. Though oﬃce demand is expandingin station-front markets, station-side retailfacilities in regional markets are seeing some
excess capacity. These conditions have led
some players to convert such spaces for oﬃce
use.
The most notable conversion to date will
be implemented at Aeon Shoppers Fukuoka,
which will see a total of 3,500 tsubo acrossthree ﬂoors converted for oﬃce use until
2024, when new supply related to the Tenjin
Big Bang Project has fully entered the market.

5

Retail-to-oﬃce conversions are also being
carried out in Osaka, notably at E-ma, a retailand cinema complex located near Umeda
Station.
Conversions oﬀer the ﬂexibility ofadjusting available space based on supply andother market conditions while minimisingexpenditures. As is ideal for oﬃce buildings,
urban retail facilities tend to be locatedwithin a ﬁve-minute walking distance of thenearest station and have large ﬂoor plateswith relatively open ﬂoor plans. Department
stores in particular tend to ﬁt theseparameters and have so far been the target ofsuch conversions, though other types of retailassets could conceivably be rebalanced toprovide oﬃce space in high-demand areas.
To be sure, this is a newly-emerging
trend that is so far limited to select cases in
exceptionally tight oﬃce markets such as
Fukuoka. As major oﬃce markets tighten
further, some additional players may
reposition their assets in order to capitaliseon the opportunity. With strong performanceacross all real estate sectors, however, mostproperty owners may be content just to reap
the already-attractive rewards of assets intheir current state.
OUTLOOK
Regional oﬃce markets are supported bystrong fundamentals that are unlikely towane in the near term without a major
external shock. High-grade oﬃces continue
to perform exceptionally well, though limited
supply and availability for new tenants may
be slowing rental growth in top submarkets.
All-grade markets are also reaching record
levels of tightness and rental growth ispicking up, even outside of station-front
areas. Net migration to urban centres, aswell as booming tourism, should continue
to support long-term demand and economic
fundamentals in major markets.
That said, the global economy is becoming
increasingly uncertain and some domestic
economic indicators are sending cautious
signals. Speciﬁcally, the Cabinet Oﬃce’sbusiness condition index for January declined
for the third consecutive month, reaching
its lowest level since 2013. Moreover, thoughstill at a historically high level, corporate
proﬁts posted a decline for the ﬁrst timein ten quarters, down 7% YoY. Regionaloﬃce markets have been more vulnerable
to economic downturns, as some ﬁrms may
close branch oﬃces under such conditions;however, extremely limited oﬃce supply
should mitigate the eﬀects in most regional
markets.

Regional Japanese Oﬃce Markets

GRAPH 9: New NRA Office Supply In Osaka City, 2006 to 2021F

OSAKA CITY

70,00060,000TSUBO

50,00040,00030,00020,00010,0000

Source Sanko Estate, Savills Research & Consultancy

Net Rentable Area (NRA)
Osaka’s total NRA has hovered around 2.2
million tsubo since 2016. With the completionof the Namba Skyo Building in the autumnof last year, no new large-scale supply is
expected until the Obic Midosuji Building
comes online with 5,900 tsubo of NRA in2020 in the Yodoyabashi-Honmachi area.
Other areas will see some small-scale projects
coming online this year.
Supply to the Umeda area, Osaka’s top
submarket, will be essentially non-existentuntil Umeda Twin Towers South comes
online in 2022, followed by JP Tower Osaka,
which is slated for 2023 and will have an oﬃce
GFA of 41,000 tsubo. Looking further ahead,phase 2 of the massive Umekita Project will
add four mixed-use towers with a combinedoﬃce GFA of 53,000 tsubo over a 17-hectare
development site on the northwest side of
Osaka Station.

GRAPH 10: Vacancy Rate In Osaka City By Area, 2011 to 2019
Average
Yodoyabashi-Honmachi
Shin-Osaka
25%

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

VACANCY

20%

15%

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

GRAPH 11: Average Rent In Osaka City By Area, 2011 to 2019
Average
Yodoyabashi-Honmachi
Shin-Osaka
16,000

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

JPY / TSUBO / MONTH

15,00014,00013,00012,00011,00010,000
9,000
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research

6

Vacancy
Average high-grade vacancy fell 0.5ppts
YoY to 0.2%, as large-scale buildings saw
strong leasing demand. All-grade vacancy for
Osaka’s CBD stood at 2.7% as of February,
down 0.7ppts YoY. Semba recorded the mostsigniﬁcant tightening, down 1.5ppts YoY to
3.7%. Shin-Osaka was the only submarket
to register higher vacancy, up 0.1ppts YoY
and all submarkets now have vacancy of lessthan 5%.
Leasing appears to be strong for those few
projects coming online. The Namba Skyo
Building reportedly entered the market in
September with around 15% vacancy, but has
tightened to around 5% as of February 2019.
Further, it has been reported that WeWork
will lease the entirety of Midosuji Frontier(formerly Midosuji Front Tower) for its
second Osaka location. LaSalle Investment
Management acquired the 3,500 tsubo NRA
oﬃce tower, which had been unoccupied
since 2010, in October 2018.
Rent
Average high-grade oﬃce rents in Osaka
have risen 12.0% YoY to stand at JPY22,300
per tsubo per month. Shin-Osaka continues
to see strong rental growth, up 17.5% YoY,
but was surpassed by Namba, which grewa staggering 21.2% YoY, mainly due to theintroduction of the Namba Skyo Building.
All-grade rents in Osaka stood around
JPY11,500 per tsubo as of February,
representing growth of 1.5% YoY. The
average pace of YoY growth appears tobe slowing down somewhat. Even so,
Shin-Osaka posted exceptional growthof 3.1% YoY, the highest among all Osaka
submarkets, while growth in Umeda slowed
to 2.0% YoY. All submarkets have seen
positive YoY growth since May 2018.

Regional Japanese Oﬃce Markets

TABLE 2: Osaka Prefecture Key Macro Indicators*

JAPAN

TOKYO

OSAKA

Real GDP (JPY trillion)

535.3

103.6

38.6

Real GDP (YoY%)

0.8

1.8

1.5

% of Japan (2015)

100%

20%

7%

Population (million)

126.3

13.9

8.8

Job to applicant ratio

1.6

2.2

1.8

Source Cabinet Offi ce, Osaka Prefectural Government, Savills Research & Consultancy*Real GDP for Japan is as of Q4/2018, for Tokyo, Osaka and % of Japan, 2015.

TABLE 3: Osaka High-grade Office

1H/2019

HOH

YOY

Rent

22,300

7.7%

12.0%

Vacancy

0.2%-0.6ppts-0.5ppts

Top Rent

35,000+0+3,000Source Savills Research & Consultancy

Umeda
High-grade rents in Umeda and Nakanoshimarange from JPY20,000 to over JPY35,000
per tsubo per month. Though top andbottom rents have remained ﬂattish since
the previous report, YoY growth in Umeda
averaged 12.8%. As vacancy is now at 0.1%,
more landlords are pushing towards top-level
rents, with a bidding system for potential
lessees rumoured to have been introduced.
Yodoyabashi-Honmachi
High-grade rents in Yodoyabashi and
Honmachi range from JPY13,000 to
JPY28,000 per tsubo per month. Rents haverisen at the lower and higher ends of therange. As of February, all-grade vacancy inthe submarket stood at 2.3%, down 1.4ppts
YoY. Despite seeing the second largest YoY
drop in vacancy, all-grade rental growth in
the area, at 0.7% YoY as of February, remains
the weakest among all submarkets.
Nippon Life Insurance announced thetentatively-named Shin-Yodoyabashi
Building Development Project, which will
redevelop the existing structure, the Nihon
Seimei Yodoyabashi Building, into a 25F
mixed-use tower with a GFA of 15,500 tsubo.
Slated for completion in 2022, it will be thetallest oﬃce building in the Yodoyabashi area.

Shin-Osaka
High-grade rents in Shin-Osaka range from
JPY16,000 to JPY27,000 per tsubo permonth. Top and bottom rents have risen by
JPY2,000, with average rents growing rapidly,
up 17.5% YoY. All-grade rental growth appears
to have responded in kind, up 3.1% YoY, thehighest rate of growth on record according toMiki Shoji.
OutlookWith oﬃce supply very limited, extremely
tight oﬃce vacancy conditions should
persist for at least the next two years, while
top high-grade rents, still below 2008
levels, likely have room for further growth.
Upcoming events and developments should
continue to support the local economy andfoster demand, even as new large-scale
developments come online in 2022 andbeyond.
Osaka has been selected to host the 2025
World Expo, which will attract visitors andserve as a platform for the Keihanshin area
to showcase its industries. The government
estimates that the event will draw 28 million
attendees and add JPY2 trillion to thenational economy. Osaka is also aiming tohave an integrated resort up and running intime for the event. These catalysts should
expedite infrastructure projects, including an

7extension of the subway line, making Osaka
more attractive.

Regional Japanese Oﬃce Markets

GRAPH 12: New NRA Office Supply In Nagoya City, 2006 to 2021F

NAGOYA CITY

50,00045,00040,000TSUBO

35,00030,00025,00020,00015,00010,0005,000
0Source Sanko Estate, Savills Research & Consultancy

GRAPH 13: Vacancy Rate In Nagoya City By Area, 2011 to 2019
Average

Meieki

FushimiSakae

Marunouchi

20%

VACANCY

15%

10%

5%

NRA
Total NRA in Nagoya stood at just under
1.0 million tsubo as of February, dropping
slightly as a result of demolitions in
preparation for redevelopment. New
buildings coming online over the next three
years will be relatively small and total volume
is expected to be far below that of the 20152018 period. In April, Aeon Mall announced
its ﬁrst mixed-use retail and oﬃce facility,
due for completion in 2021 as a part of the
Noritake Forest Project. Oﬃce ﬂoor plates are
rumoured to be 2,000 tsubo; however, suchdetails have yet to be conﬁrmed.
Most incoming supply between now and
2021 will be concentrated in Meieki, thoughdevelopment is also shifting outward. The
tentatively-named Kajima Fushimi Building,due in October, will add 3,200 tsubo of oﬃce
NRA to the market with 260 tsubo available
per ﬂoor. A new landmark for the Fushimi area,
this will be the ﬁrst high-grade oﬃce buildingthat the submarket has seen since 2012.
Moreover, the Sakae area has been
designated as an urban revitalisation district,which is already supporting major upcoming
projects. NTT Urban Development’s project toreconstruct the former Sumitomo Corporation
Nagoya Building, for example, has been
approved under the new designation, allowing
the current 13F structure to be developed
into a 20F oﬃce building by early 2022. In
February, details were released regarding theredevelopment of the Chubu Nippon Building.
Scheduled for completion in 2024, the projectwill convert the current B4/12F structure into
a B4/31F mixed-use tower with a GFA of over
34,000 tsubo.

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

GRAPH 14: Average Rent In Nagoya City By Area, 2011 to 2019
Average

Meieki

FushimiSakae

Marunouchi

14,000JPY / TSUBO / MONTH

13,00012,00011,000Vacancy
High-grade vacancy in Nagoya remains thetightest of the three submarkets covered,
dropping an additional 0.2ppts over the halfyear and now sitting at 4bps. With alreadyairtight vacancy in the high-grade Meieki
market, outer submarkets saw a steadystream of leasing and have fallen to near-zerolevels.
All-grade vacancy continues to tighten
rapidly, down 1.5ppts YoY to sit at 2.5% as ofFebruary. All surveyed submarkets save Sakae
posted vacancy below 3.0%. There is stillroom for compression in the all-grade market,
particularly as high-grade space is severely
limited.
Rent
High-grade oﬃce rents grew by 8.2% YoY on
average, led by the Fushimi and Marunouchi
markets, which posted signiﬁcant growth of
17.6% and 12.6%, respectively. This represents
a major shift in the Nagoya oﬃce market,

10,000

9,000

8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research8Regional Japanese Oﬃce Markets

TABLE 4: Aichi Prefecture Key Macro Indicators*

JAPAN

TOKYO

AICHI

Real GDP (JPY trillion)

535.3

103.6

37.4

Real GDP (YoY%)

0.8

1.8

0.7

% of Japan (2015)

100%

20%

7%

Population (million)

126.3

13.9

7.5

Job to applicant ratio

1.6

2.2

1.9

Source Cabinet Offi ce, Aichi Prefectural Government, Savills Research & Consultancy*Real GDP for Japan is as of Q4/2018, for Tokyo, Aichi and % of Japan, 2015.

TABLE 5: Nagoya High-grade Office

1H/2019

HOH

YOY

Rent

19,600

5.1%

8.2%

Vacancy

0.0%-0.2ppts-0.4ppts

Top Rent

36,000++1,000+1,000Source Savills Research & Consultancy

which has until now seen rental growth
dominated by the station-side Meieki area.
The all-grade market, on the other hand,continues to be led by Meieki, which saw rents
grow 3.7% YoY to land at JPY13,500. Indeed,at JPY11,200, Nagoya all-grade rents are far
below the high-grade average, and growth
rates are similarly more modest, averaging
1.9% YoY. Encouragingly, rents in Sakae
appear to have bottomed out, posting theirhighest YoY growth since January 2009.
Meieki
Asking rates for station-side tower locations
now range from JPY34,000 to over JPY36,000.
Availability in these locations has been
exceptionally limited for the past year andexisting tenants are expected to pay higher
rents. Speciﬁcally, it is expected that originaltenants in one tower could see rents adjusted
by as much as JPY10,000 per tsubo upon
contract renewal to match the above rates.
Rents for large-scale oﬃces in the area
range between JPY20,000 and JPY30,000
per tsubo per month, with top rents rising
JPY5,000 over the prior period.
Fushimi and Marunouchi
High-grade rents in Fushimi and Marunouchi
now range between JPY15,000 to JPY24,000

per tsubo per month. Top asking rents grew
JPY4,000 over the half year as a landmark
building in the Fushimi area raised rents by
20%, though buildings across the high-grade
spectrum have also seen substantial rental
growth in both markets.
All but one ﬂoor of the Kajima Fushimi
Building is rumoured to have beenpreleased, with the remaining ﬂoor being
listed at JPY23,000, around JPY3,000 higher
than when preleasing began.
Outlook
While high-grade rents in the Meieki district
still command a JPY10,000+ premium oversurrounding markets, a prolonged periodof airtight vacancy appears to have ﬁ nally
had a ripple eﬀect on nearby submarkets,with Fushimi and Marunouchi posting
exceptional YoY growth. The all-grade
market also appears to have beneﬁtted fromlimited high-grade availability, though gains
have so far been largely concentrated in
Meieki.
With upcoming supply limited and strong
demand, particularly in Meieki and Fushimi,
rents should continue to rise. Relocations
due to development of the Linear Chuo
Shinkansen (maglev) station should tighten

9

the station-side market even further, while
redevelopment in other submarkets, notably
Sakae, should improve the attractiveness ofoﬃces beyond the station area.

Regional Japanese Oﬃce Markets

GRAPH 15: New NRA Office Supply In Fukuoka City, 2006 to 2021F

FUKUOKA CITY

30,00025,000TSUBO

20,00015,00010,0005,000

0Source Sanko Estate, Savills Research & Consultancy

GRAPH 16: Vacancy Rate In Fukuoka City By Area, 2011 to 2019
Average
YakuinHakata Sta. Southeast

Akasaka
Gion

TenjinHakata Sta. West

20%

VACANCY

15%

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

GRAPH 17: Average Rent In Fukuoka City By Area, 2011 to 2019
Average
YakuinHakata Sta. Southeast

Akasaka
Gion

TenjinHakata Sta. West11,500JPY / TSUBO / MONTH

11,00010,50010,000
9,500
9,000
8,500
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research

10

NRA
Total oﬃce NRA currently sits at 0.7 million
tsubo, though this should steadily increaseover the coming decade as a result of the“Tenjin Big Bang” revitalisation project,which aims to rebuild 30 buildings by
2024. Although it appears unlikely that thisambitious goal will be reached, available
disclosures suggest that Fukuoka’s oﬃce
supply pipeline over the next few years is thestrongest of all regional cities surveyed in thisreport.
Construction of the ﬁrst large-scale
development under the project, the Tenjin
Business Centre, began in January andis expected to complete in September
2021, oﬀering 18,500 tsubo GFA across 19
ﬂoors, three greater than initially planned,
thanks to relaxed height restrictions. The
next Tenjin Big Bang development, theFukuzakuri Redevelopment Project, is
expected to add 30,000 tsubo GFA when it
completes in 2023.
While the market waits for new supply, asevere lack of available oﬃce space has led
some landlords to repurpose other spaces foroﬃce use, as with Aeon Shoppers Fukuoka,
which will convert a total of 3,500 tsubo foroﬃce use until 2024. Under its “Re Biru”
operation, Mitsubishi Estate completed
renovation of the Park Rex Hakata, which isowned by the Nikkei, converting a large areathat held a printing press into a multi-ﬂoor
retail and oﬃce space.
Vacancy
High-grade vacancy in Fukuoka tightened
0.2ppts YoY to 0.1%, while the average allgrade vacancy rate fell 1.5ppts to 1.9% as ofFebruary 2019. The Akasaka, Tenjin, andHakata Station West areas all saw vacancy
drop around 2.0ppts YoY. Fukuoka oﬃce
demand is spreading beyond the top stationside markets and gains are becoming more
distributed.
In early 2019, WeWork unveiled a second
Fukuoka location with 550 seats in Nakasu,
adding to its 350 seat location in Daimyo,
which opened in December 2018. Makuake,one of Japan’s largest crowdfunding
companies, will open its ﬁrst Fukuoka oﬃce
to better serve Kyushu-based startups.
Rent
Average high-grade oﬃce rents in Fukuoka
rose 5.5% YoY to stand at JPY17,600 per
tsubo per month. While still strong, growthis lagging behind that of Osaka and Nagoya.
Limited leasing activity due to extremely tightconditions is likely tempering average rents in
the high-grade market.
All-grade rental growth, on the other hand,continues to outpace all other markets inRegional Japanese Oﬃce Markets

TABLE 6: Fukuoka Prefecture Key Macro Indicators*

JAPAN

TOKYO

FUKUOKA

Real GDP (JPY trillion)

535.3

103.6

18.2

Real GDP (YoY%)

0.8

1.8

2.1

% of Japan (2015)

100%

20%

4%

Population (million)

126.3

13.9

5.5

Job to applicant ratio

1.6

2.2

1.6

Source Cabinet Offi ce, Fukuoka Prefectural Government, Savills Research & Consultancy*Real GDP for Japan is as of Q4/2018, for Tokyo, Fukuoka and % of Japan, 2015.

TABLE 7: Fukuoka High-grade Office

1H/2019

HOH

YOY

Rent

17,6001.5%

5.5%

Vacancy

0.1%-0.3ppts-0.4ppts

Top Rent

25,000++2,000+2,000Source Savills Research & Consultancy

our survey, rising 5.0% YoY as of February,
with the Hakata Station West submarket
posting growth of 7.4%, the highest of all
26 submarkets surveyed in this report.
The average all-grade rent stood around
JPY10,100, the highest level since 2003.
Station Front
High-grade rent around Hakata Station
averages JPY18,700 per tsubo per month,
ranging from JPY17,000 to over JPY25,000.
Top rents have grown JPY2,000 over the priorperiod and now surpass those of Tenjin.
The Fukuoka City government announced
initial plans for “Hakata Connected”
in January, which will promote theredevelopment of 80 hectares of space within
a 500-metre radius of Hakata Station. Further
details have yet to be released, though aswith the Tenjin Big Bang, building height
restrictions are expected to be loosened.
TenjinHigh-grade rent in the Tenjin area has grown
rapidly to range between JPY14,000 and
JPY24,000 per tsubo per month. Top rents
grew by JPY1,000 over the prior period,
though some landlords are rumoured to havenegotiated rents as high as JPY25,000 for
certain tenants.

OutlookFukuoka’s oﬃce market has strengthened
faster than any other market in our survey
over the past two years. While growthin average high-grade rents has slowed
down somewhat, likely due to limited
availability, average all-grade rental growthis maintaining a strong pace and submarkets
that were previously lagging behind havequickly gained ground over the past year.
The city government’s eﬀorts to bolster
the local economy, namely ongoing support
for redevelopment projects, including
Waterfront Next and a proposed ropeway
connecting Hakata Station and Hakata
Port, and measures to attract startups andentrepreneurs, both foreign and domestic,
will help solidify the city as a regional
business centre. Better quality of supply
and greater demand from businesses should
continue to support oﬃce rents.
To be sure, some local brokers and building
owners are concerned that the high levelsof supply coming online with the Tenjin
Big Bang might soften this bull market.
Even now, some outlying areas, such as
Momochihama, are still having diﬃcultyﬁlling space. Further, though the Fukuoka
oﬃce market is in an earlier phase of its
upswing, the overall economic upswing is

11well extended. That said, fundamentals arestrong in Japan’s fastest growing large cityand the market is unlikely to see a signiﬁcant
reversal without an external shock.

Regional Japanese Oﬃce Markets

GRAPH 18: Vacancy Rate In Sendai City By Area, 2011
to 2019
Average
City Hall
30%

Station Front
Station East

1-bancho
Outer Area

25%

VACANCY

20%

15%

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

GRAPH 19: Average Rent In Sendai City, 2011 to 2019

Average
City Hall
11,000Station Front
Station East

1-bancho
Outer Area

10,500JPY / TSUBO / MONTH

10,000
9,500
9,000
8,500
8,000
7,500
7,000
6,500
6,000
2011

2012 2013 2014 2015 2016 2017 2018 2019
Source Miki Shoji, Savills Research & Consultancy

SENDAI CITY
Supply and Demand
As of February 2019, Sendai’s oﬃce
market stood at just under 0.5 million
tsubo NRA, with total stock declining
slightly in recent months due todemolitions. In the wake of the 2011
disaster, much of the oﬃce supply
to the Sendai market has involved
reconstruction of small-scale, older
buildings to implement improved
earthquake protection standards.
With the oﬃce market tightening
rapidly over the past two years,
however, more landowners are looking
to redevelop other property types intooﬃces and increase the scale of existing
structures. The tentatively-named
Sendai Kakyoin Project, for example,
will convert a parking lot into a 9F oﬃce
building with a GFA of over 1,800 tsubo.
Other projects, such as the Miyako
Shinkin Bank Building due in June 2019,will replace two older oﬃce buildings on
the same lot, while the reconstruction of
the Shin-Sendai Building will add around
3,400 tsubo of GFA, 25% more than thatof the original building. JR East is alsoplanning an oﬃce development on theeast side of Sendai Station, which is set to
add 7,500 tsubo of GFA in 2021.
Demand from large ﬁ rms establishingbranch oﬃces continues to support themarket. However, with very limited
available space that meets the ﬂoor
plate and location requirements of suchtenants, particularly those looking toestablish call centres, some companies
have reportedly abandoned plans to openoﬃces in Sendai.
The recent expansion of serviced
oﬃces and co-working in the market
via Regus and Enspace, a new player
in Northern Japan, could oﬀer some

TABLE 8: Miyagi Prefecture Key Macro Indicators*

JAPAN

TOKYO

MIYAGI

Real GDP (JPY trillion)

535.3

103.6

9.3

Real GDP (YoY%)

0.8

1.8

1.8

% of Japan (2015)

100%

20%

2%

Population (million)

126.3

13.9

2.3

Job to applicant ratio

1.6

2.2

1.7

Source Cabinet Offi ce, Miyagi Prefectural Government, Savills Research & Consultancy*Real GDP for Japan is as of Q4/2018, for Tokyo, Miyagi and % of Japan, 2015.

savills.co.jp/research

12

ﬂexibility for certain tenants. Moving
forward, some landlords may begin
converting portions of other existing
properties into oﬃce space, as is
becoming increasingly common in
Fukuoka.
Vacancy
Sendai’s average all-grade vacancy rate
fell by 1.7ppts YoY to 4.5% as of February,
the lowest level recorded since Miki
Shoji’s survey began in 1992. The Station
Front and 1-bancho submarkets exhibit
the tightest vacancy, at 3.0% and 3.2%,
respectively. Vacancy in the Outer Area,
now at 7.9%, tightened 1.0ppts YoY,
revealing that demand is picking up
somewhat away from Sendai Station.
Rent
Average all-grade rents in Sendai rose
1.1% YoY to reach 9,100 per tsubo permonth. Led by the Station Front and1-bancho markets, rental growth has
been steadily picking up pace across all
submarkets since mid-2017, with YoY
growth at its highest level since May
2008. All but the Outer Area submarket
posted YoY growth as of February.
Outlook
Although oﬃce supply is severely limited,
more companies are looking to openoﬃces in Sendai. The city is locatedapproximately 1.5 hours away from
Tokyo by Shinkansen (bullet train) andfavourable business policies are drawing
in more tenants. These factors also makethe city ideal for companies looking todiversify geographically out of business
continuity planning considerations.
However, the average leasable area ofcurrently-available stock in Sendai does
not meet the requirements of some large
ﬁ rms looking to open new oﬃces.
Indeed, according to Miki Shoji’s data,
average space available per building
with vacancy is now less than 100 tsubo.
New supply slated to come online overthe next three years will oﬀer larger
ﬂoor plates with more NRA, providing
some ﬂexibility for tenants. In themeantime, however, some ﬁ rms may
have to compromise somewhat on leasing
conditions or seek out space beyond the
Sendai market.

Regional Japanese Oﬃce Markets

GRAPH 20: Vacancy Rate In Sapporo City By Area, 2011 to 2019SAPPORO CITY

Average

Station Front

Station East-WestPark South

Outer South

Station North

Supply and Demand
Sapporo’s total oﬃce NRA is approximately
0.5 million tsubo, a ﬁgure which has remained
relatively stable over the last decade. Over
half of existing stock is located immediately
to the south of Sapporo Station and along
Odori Park.
2019 will see the completion of a few
small-scale projects. The Sousei East
Building (formerly the S1E3 Building) will
be completed in the Outer South submarket
in March. According to a local agent, all
670 tsubo of oﬃce NRA has been preleased.
Minami Odori Building Ichijo is next in thepipeline, due for completion in April with
2,800 tsubo of GFA, and oﬀers around 317
tsubo of NRA per oﬃce ﬂoor.
Sapporo oﬃce demand has been largely
driven by IT ﬁ rms establishing branchoﬃces and call centres. However, theBioinformatics, Medical IT, and Medical
equipment industries are also becoming
more prominent and the city is working topromote these businesses by hosting industry
conferences and oﬀering ﬁnancial incentives
to those looking to start such businesses in
the city.
The local government is also oﬀeringsubsidies to attract corporate headquarters
to the city, providing up to JPY60 million for
headquarters relocation and JPY20 million
per year for three years to help cover humanresources expenditures. These incentives
appear to be working: for example, Tokyobased Diamond Head, an e-commerce web
design ﬁrm, opened a headquarters on
the 14th ﬂoor of Sapporo Sousei Square in
November with 88 employees and plans tofurther expand to accommodate an additional
112 employees over three years.

20%

VACANCY

15%

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

GRAPH 21: Average Rent In Sapporo City By Area, 2011 to 2019
Average
Park South

Station Front
Outer South

Station East-West
Station North

12,000JPY / TSUBO / MONTH

11,00010,000

9,000

8,000

7,000

6,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

TABLE 9: Hokkaido Prefecture Key Macro Indicators*

JAPAN

TOKYO

HOKKAIDO

Real GDP (JPY trillion)

535.3

103.6

18.3

Real GDP (YoY%)

0.8

1.8

1.1

% of Japan (2015)

100%

20%

4%

Population (million)

126.3

13.9

5.3

Job to applicant ratio

1.6

2.2

1.2

Source Cabinet Offi ce, Hokkaido Prefectural Government, Savills Research & Consultancy*Real GDP for Japan is as of Q4/2018, for Tokyo, Hokkaido and % of Japan, 2015.

savills.co.jp/research

13Regional Japanese Oﬃce Markets

Vacancy
The average all-grade vacancy rate for
Sapporo as of February 2019 was 2.7%, a 0.3
ppts rise YoY. Vacancy in the Station Front
submarket fell 1.1ppts to land at 0.8% as ofJanuary; however, vacancy ticked up to 1.5%
- still down 0.3 ppts YoY - as of February,reportedly due to a large tenant moving to acompany-owned building. All other markets
other than the Outer South posted YoY
increases in vacancy. Lack of suﬃcient space
may be preventing new tenants from entering
the market.
According to Miki Shoji’s data, Sapporo
Sousei Square, which is located in the EastWest submarket, still appears over 20%
vacant, though this ﬁgure has been falling
steadily since the building opened in May
2018.
Rent
All-grade rental growth has been accelerating
since early 2016, reaching 3.5% YoY in
February. Station North posted the largest
growth of 5.2% YoY, followed closely byPark South and Station East-West at 4.8%
and 4.7%, respectively. Rental growth in theStation Front market, however, has slowed to
0.9% YoY.
Station Front rental growth picked up

during the year following the completionof the Sapporo Fukoku Seimei Koshiyama
Building in January 2017, but has graduallyslowed since, likely due to limited space forrelocations. The Station East-West market
still appears to be gaining momentum fromthe completion of Sapporo Sousei Square.
The completion of the Daido Seimei Sapporo
Building early next year could reignite theStation Front market.

with higher speciﬁcations should add somevitality to the market and support rent
growth, without overcrowding the market.
That said, the market has so far relied on
the establishment of branch oﬃces, whichmight be closed in a downturn. Eﬀorts by the
local government to draw in more corporate
headquarters and larger oﬃces should help
reduce the blow to the market when the
global economy turns south.

Outlook
Limited supply and steady demand have
led the Sapporo market to have the second
highest YoY rental growth among cities
surveyed. Indeed, as the largest city inNorthern Japan, Sapporo remains an
attractive business centre and net migrationis strong. The recent completion of La Tour
Sapporo Ito Garden, a luxury apartmentbuilding near Sapporo Station that oﬀers
330 units – crowned by a penthouse that will
be rented for JPY850,000 per month – isindicative of the city’s growing prosperity.
Sapporo is also looking to host the WinterOlympics in 2030, which – along with thecompletion of the Hokkaido ShinkansenLine extension – should promote further
development in the long term. In the nearterm, modest supply of new oﬃce buildings

For more information about this report, please contact us

Savills Japan

Savills Research

Christian Mancini
CEO, Asia Paciﬁc(Ex. Greater China)+81 3 6777 5150
cmancini@savills.co.jp

Tetsuya Kaneko
Director, Head of Research& Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

Simon Smith
Senior Director
Asia Paciﬁc+852 2842 4573
ssmith@savills.com.hk

Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offi ces and associates throughout the Americas, the UK,continental Europe, Asia Paciﬁc, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative
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14